4 Things First-Time Homebuyers Should Know About Filing Taxes in 2023

published Jan 17, 2023
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In addition to things like building equity and making improvements without fearing a ding to your security deposit, homeownership comes with some unique tax benefits. The biggest perk? As a homeowner, you have the option to take an itemized deduction that subtracts mortgage interest from your taxable income — lowering the amount of taxes you owe. 

First things first: Mark April 18, 2023 on your calendar; it’s the IRS tax deadline for filing 2022 returns. If you bought a home in 2022 (or prior) here’s what you should know about filing your taxes in 2023, according to certified public accountants. 

You can deduct your mortgage interest.

If you took out a mortgage to purchase your home, be on the lookout for Form 1098, which will be mailed to you and can be found in your mortgage payment portal. This form breaks down what portion of your mortgage payments went toward interest, property taxes, mortgage insurance and, if applicable, points or loan origination fees. All of these can be tax deductible if the homebuyer itemizes their deductions, says Colin Smith, a CPA who has a practice in the Cleveland, Ohio area and runs CPAExam Maven, which helps aspiring accountants prepare for CPA exams.

Most tax filers take the standard deduction when they’re doing their taxes, but about 25 percent will itemize — and it’s often homeownership that puts you above the threshold to do so, explains Kari Brummond, an accountant and content strategist with TaxCure.com

For tax year 2022 (which you file at the beginning of 2023), the standard deduction is $12,950 for single filers and $25,900 for married filers, Brummond points out. Alternatively, you can itemize, which just means that you add up all of your qualifying expenses and you claim that amount instead of the standard deduction. 

“You should only itemize if your total exceeds the standard deduction,” she says. “To see if your new home qualifies you to itemize, add up your mortgage interest, property tax, amounts paid for discount points, and private mortgage insurance (PMI).”

You can tap your IRA without penalties.

If you need to gather up more money for your down payment, dipping into your retirement fund is an option. Many first-time buyers don’t know that they can tap their IRAs or Roth IRAs and avoid penalties, Smith says. First-time homebuyers buyers can withdraw up to $10k from their IRA without incurring the 10 percent early-withdrawal penalty, and those with Roth IRA accounts can withdraw 100 percent of their contributions penalty-free after five years. 

“These options give new homeowners lots of flexibility in how they finance the purchase of their home or make repairs,” he says.

If you’re renting out a room in your home, be prepared to pay income taxes on the rental revenue. 

Before homeownership, you probably never thought about how a roommate would affect your tax situation. But if you house hack (i.e. you own a home and rent a room out to help cover your mortgage or generate some spending cash), you need to report that income to the IRS. Same goes if you’re renting out a spare room on Airbnb.

Do keep your receipts for any rental business activity, though, Smith says, so that you can deduct any expenses.

You may get some renewable energy credits. 

The Inflation Reduction Act of 2022 brought about a ton of renewable energy credits that many first-time homebuyers can take advantage of when making capital improvements to their property, Smith says. 

Up to 30 percent of the cost of new installations of renewable energy equipment such as charging stations will be deductible in 2023, he says.

Federal income tax credits are also available, providing up to $3,200 annually to lower the cost of energy efficient home upgrades. These are things like installing new doors and windows or heat pump water heaters. The bonus? Doing these will also help you save money on your energy bills.